RIMS calls for TRIA extension with coverage for terrorism from chemical, nuclear weapons

Risk and Insurance Management Society Inc. (RIMS) is calling on the U.S. government to extend its Terrorism Risk and Insurance Act, in some form, beyond 2014.

TRIA was first passed into law in 2002 and, in essence, requires insurers to offer terrorism coverage to commercial clients. One of its aims is to ensure the “widespread availability and affordability of property and casualty coverage” for terrorism risk, with the U.S. government acting as a backstop under certain circumstances, according to a report released Tuesday by RIMS.

TRIA has been extended several times and currently has an expiry date of Dec. 31, 2014, though Congress is considering proposals to extend it.

“RIMS affirms its view that for the protection of insurance policyholders and the stability of the country’s economy, TRIA should be continued in some form,” RIMS wrote in the report, titled Terrorism Risk Insurance Act: The Commercial Consumer’s Perspective.

RIMS stated most companies “cannot afford to absorb the costs of terrorism related losses without the benefit of an insurance backstop.”

The report, written by three members of RIMS’ external affairs committee, concludes that an extension to TRIA should require the inclusion of coverage of acts of terrorism involving the use of nuclear, biological, chemical or radiological devices.

“TRIA, as currently constructed, neither includes nor excludes NBCR events,” RIMS noted, adding carriers “have largely relied on long-standing standard exclusions for nuclear and pollution risks to include exclusions for NBCR events in terrorism policies.”

But without such coverage, RIMS argues, policyholders suffering catastrophic losses due to an NBCR attack “are at risk of going under.”

The U.S. government passed TRIA as a result of the Sept. 11, 2001 hijacking of four airplanes that resulted in the destruction of the World Trade Center in New York City. Under TRIA, the federal government shares losses under certain circumstances. Among other things, a terrorist act would have to result in losses exceeding $5 million in the U.S. and be certified as a terrorist act by the U.S. Secretary of State, Attorney General and Secretary of the Treasury.

The attack would also have to result in aggregate losses to the insurance industry of more than $100 million. Even then, there is a deductible, to the private insurers, of 20% of their annual direct earned premiums from commercial P&C lines, RIMS noted in the report. Once that deductible is exceeded, the federal government covers 85% of the insurer’s loss above the deductible, until the total losses are $100 billion.

At least three bills that propose to extend TRIA beyond 2014 are currently under consideration by committees of the U.S. House of Representatives.

Last February, the TRIA Reauthorization Act of 2013 was introduced. If passed into law, it would extend TRIA through December 31, 2019. It was sponsored by Michael Grimm, a Democrat who represents the 11th District of New York.

Then in May, two bills proposing to extend TRIA by 10 years were also introduced in the House of Representatives. The Terrorism Risk Insurance Program Reauthorization Act of 2013 was referred to the House Committee on Financial Services, which is also considering the TRIA Reauthorization Act of 2013.

A third bill, dubbed the Fostering Resilience to Terrorism Act of 2013, also proposes to extend TRIA to 2024 but would make several other changes. For example, that bill would require the Secretary of Homeland Security to provide, to insureds, “timely homeland security information, including terrorism risk information, at the appropriate classification level,” and “information on best practices to foster resilience to an act of terrorism.”

The Fostering Resilience to Terrorism Act was sponsored by Bennie Thompson, a Democrat representing the Second District of Mississippi. It has been referred to the Subcommittee on Cybersecurity, Infrastructure Protection, and Security Technologies.